Ethos-led Swiss investor say-on-pay campaign calls for international support

A major Swiss “say-on-pay” campaign to put resolutions on the agendas of the 2009 annual general meetings of the country’s largest companies: ABB, Credit Suisse, Nestlé, Novartis and UBS, is being taken international with the launch of a support group inviting overseas institutional investors to give their backing. The resolutions, put forward by eight Swiss pension funds and Ethos, the Geneva-based foundation which looks after CHF2.3bn (€1.4bn) in assets run on a socially responsible basis on behalf of Swiss pension funds, are demanding an advisory vote on the companies’ remuneration reports. The funds say they have launched the international initiative to gather “maximum endorsement” from overseas investors who hold large stakes in the targeted Swiss companies. In a statement, Ethos said: “Among the main stock markets, Switzerland is the only country where the legislation does not provide shareholders with any right to express their opinion on executive remuneration. For this reason, action is now needed by shareholders. Through this initiative, Ethos wants to contribute positively to solve the executive remuneration issue.” The new support group is inviting both Swiss and non-Swiss institutional shareholders to join. In addition to the eight pension funds who co-filed the resolutions with Ethos, twelve other Swiss pension funds have already signed up. The move is one of the boldest signs yet of action by institutional investors in Europe following worldwide condemnation by politicians and investors of excessive executive pay as being at theheart of the credit crunch and financial markets meltdown.
Earlier this year, Ethos led an attack on financial transparency at UBS, after the bank revealed huge sub-prime related losses. Responding to investor and government pressure, UBS, recently sought to allay the controversy by laying down a new 2009 executive remuneration system including a “bonus-malus” test and a stipulation that bonuses will be conditional on achievement of risk-adjusted performance targets tested over several years. Ethos welcomed the new framework, including a new shareholder vote clause which it had lobbied for, but said it regretted that the new system sets no overall bonus limits and could also still allow so-called ‘golden hello’ payments. The investor campaign is currently considering whether to withdraw its resolution at UBS as a result. A report issued in September by Ethos on remuneration practices in 2007 amongst the major Swiss listed companies, suggests the targeted companies could be in for a fight. Ethos, which has around 80 pension fund members, found that that pay amongst certain Swiss executives was “inappropriate” and “excessive” in light of company performance. Ethos said: “Remuneration policies often do not follow international best practice guidelines. In most cases, variable pay is not determined by adequate performance criteria and recent events have demonstrated that a bad remuneration structure can have very negative consequences on the company’s strategy.”